Bill Ackman's $1 billion short on surging Herbalife has cost the hedge fend mogul $200 million so far. Photo: REUTERS

Hedge fund mogul Bill Ackman likes to say short selling causes “brain damage” — and his $1 billion short on Herbalife is proving a case in point.

Herbalife shares have surged in the past two weeks, pushing Ackman into the red for the first time since he began building the short in June 2012.

His $12 billion Pershing Square hedge funds are carrying a paper loss of about $200 million, including borrowing costs. The bet has cost his funds about 2 percent since they put on the short, sources said.

Ackman has called the controversial seller of protein shakes a “pyramid scheme” and is betting the stock will fall. The company has denied the allegations.

About two weeks ago, Herbalife shares rose above the estimated $50 Ackman paid when he borrowed the stock before selling it. Ackman has not covered or hedged that position, sources said.

Investors anticipating that Herbalife will report strong earnings today pushed the stock to $58.45 Friday, up 1.72 percent. That price gives Ackman an estimated paper loss of about $170 million, based on about 20 million shares he is short.

Short sellers also must pay dividends to shareholders, or $12 million in this case, and they incur borrowing costs. Ackman locked in a long-term rate of around 4 percent of the shares’ market price, according to industry sources, costing him about $15 million so far.

When a shorted stock’s price rises above its price when borrowed, short sellers have to post margin or collateral to make up the difference. That can end up creating a short squeeze if the short seller doesn’t have the cash or stock and has to buy shares to cover.

That’s not an issue for Ackman. His $12 billion is in unlevered stocks and cash, which easily be used to collateralize the position.

As one well-known short seller noted, “He can stay short this thing — if he believes in it — until the cows come home.”